Tata Pins Hopes on Diesel Nano

A man walked an advertisement of the Tata Nano in Mumbai, Dec. 8, 2011.

Tata Motors earlier this week said it plans to introduce a diesel variant of its Nano minicar by the end of next year, a move that may improve sales of the car, which have been disappointing.

Marketed as the world’s cheapest car when it was first released in 2009, the Nano was never able to reach its sales target. Safety issues, a shortage of parts and the reluctance of some consumers to buy a vehicle dubbed as “the poor man’s car” were partly to blame. In 2010, the company had to shift the site of its manufacturing plant following local opposition, slowing down production.

The company hopes that by offering diesel Nanos, it will be able to tap on the growing demand for this type of cars in India. Over the past year, sales for vehicles powered by diesel have gone up sharply. The price of diesel is set by the government and is about 45% cheaper than gasoline, which was recently deregulated, leading to an increase in prices.

To meet this growing demand, passenger-car makers, including Maruti Suzuki and Hyundai Motor have been increased production of their diesel models and introducing diesel variants of existing cars.

Nanos are currently sold only with gasoline engines with a starting price of 154,540 rupees ($2834) in Mumbai showrooms. The price for the diesel variant will be announced at the time of its launch, expected by the end of 2013.

“We have seen the whole market shifting to diesel vehicles. Also Maruti’s new Alto, the Nano’s close competitor hasn’t come out with a diesel variant, so the Nano will enjoy a dominant position if Maruti continues with only a gasoline model by next year,” said Surjit Arora, an analyst with brokerage Prabhudas Lilladher.

A Tata Motors’ spokesman wasn’t immediately available to comment.

But some industry watchers are sceptical that offering diesel models will help significantly lift Nano sales. “Tata Motors has to get the marketing and pricing right. The Nano was marketed as a ‘1 lakh (100,000 rupees) car’ but customers found out they had to pay much more,” says Mahantesh Sabarad, an analyst with Fortune Equity Brokers Pvt. It doesn’t help that diesel models are generally more expensive than gasoline ones.

Another analyst says rear mounting a two-cylinder diesel engine on the car would make it noisy and the rate at which it picks up speed would be lower than its gasoline variant. This, in turn, is likely to discourage potential customers.

A model powered by compressed natural gas is expected to be launched in the first half of 2013, the company’s managing director Karl Slym told a news conference. CNG is also cheaper than gasoline and would likely help boost sales.